I was recently asked some questions about different options and scenarios for first-time buyers. Have a read here and if you have any further questions, feel free to get in touch with me.
- Are there any schemes available for first-time buyers to help them buy their first property?
Yes, there are several schemes available for first-time buyers. There is the well-known Help to Buy scheme, both for Equity Loans and Mortgage Guarantee. The Equity Loan is available for first-time buyers who want to buy a new build, as long as they have a 5% deposit. The Mortgage Guarantee scheme was announced in 2021, and helps to protect lenders, supporting them to offer more 95% mortgages. This is available to both first-time buyers and existing homeowners.
For those who opened a Help to Buy ISA, that can still be used before 2030. Replacing the Help to Buy ISA is the LISA (Lifetime Individual Savings Account), which is either to save for your first home or later life, and is topped up 25% annually by the government.
There are similar schemes available for buyers in Scotland, Wales, and Northern Ireland.
- Can a son or daughter buy their parents’ house at a reduced rate to get on the property ladder?
Buying a house at a reduced rate, or at less than market value is called a Concessionary Purchase or a BMV – Below Market Value Purchase. There are lenders that would consider a Family Concessionary Purchase. They would use the discount as gifted equity for the deposit. Some lenders would insist that the parents are unable to live in the property on completion.
- Can a son or daughter buy half of their parent’s property to get on the property ladder?
No, it would need to be joint ownership and a joint mortgage if they wanted the property to be in both the child’s and parent’s name. You cannot get a mortgage just for half of the property.
- Is there any help for a single person to buy their first property in an area where there is not much choice for them due to their low income? For Example, a single woman earns £25,000 and most of the properties available are priced between £100,000 and £200,000
Unfortunately, there isn’t much help. In this scenario, they would require an additional source of income such as another person on the mortgage if it didn’t fit the affordability. The maximum borrowing tends to be around 4.49 x income. The Help to Buy Equity Loan is another option which gives the first-time buyer access to a 20% deposit while only needing to have a 5% deposit available. This would mean that the lending wouldn’t need to be quite as high. However, the lender will still take the eventual repayments of the Equity Loan into consideration when looking at affordability. Another option is shared ownership.
- What help can parents provide their children to help them get on the property ladder?
Parents can help with a gifted deposit to help their children get on the ladder. It’s hard for a child to save for the deposit so help from parents is common. If it’s an affordability issue, the parent could also go on the mortgage with the child and do the joint borrower, sole proprietor option which would mean that the additional stamp duty wouldn’t be payable, however, the term would be restricted to the parents’ age. Another way to increase parental support would be to put any contributions into their child’s LISA, which can be opened once the child hits 18. This will mean that the valid contributions are all topped up by the government by 25%. If the parent is planning for the future, this might be a good option.
- If a young person wants to get on the property ladder and has £10,000 saved up for a deposit, but their credit history is not great due to mistakes in the past, can they still get a mortgage, and if so, how?
It would all depend on what’s on their credit file. All lenders have different criteria so it would be a case of looking at the full credit report and approaching the lenders. There are specialised lenders that consider adverse credit, these usually come with a higher interest rate.
- Although Boris Johnson has mentioned that he was looking at allowing people on benefits to get a mortgage, can people at the present moment get a mortgage on benefits?
Example 1. A married couple are aged 52 (M) and 65 (F). They have their own home and have a mortgage left on the property of £60,000. The property is worth £120,000. The wife is now retired and receives a pension, and the husband receives full PIP. Are they able to put down a sizeable deposit on a new property that is suitable to their needs such as a bungalow of £15,000 to purchase a new property and get a mortgage?
Yes, this type of income can be considered. There are lenders that would consider PIP and the pension income too. In this scenario, it does help to have the pension income and not be solely reliant on benefit income.
Example 2. A young couple, one working earning £20,000 a year, and the other one claiming benefits. Is it possible for them to get a mortgage?
Yes, again this scenario can be considered. Some lenders do restrict the benefit income to the amount of earned income if it was above this. Not every lender does consider benefit income so it’s a case of looking at the lenders that do.
- Also, can anyone on benefits get a mortgage?
It will depend on other factors such as affordability, age, dependants, credit score etc. With benefits such as child tax credit and child benefit, it does also depend on the age of the child as to whether it can be considered. For instance, if the child is 16 and it will be stopping at 18, the lenders would be reluctant to take this income if the term of the mortgage was 20 years for example because it’s not a sustainable income for the full term. With all of the above scenarios, it’s wise to work with a broker experienced in these sorts of mortgages who can approach the best lenders.
- What are the pros and cons of buying a part share in a property?
Pros – the mortgage will be lower as you will be only paying for your share of the property. It’s often a more accessible way to get on the property ladder.
Cons – you may need to pay rent for the other share and you don’t own 100% of the property which may affect your rights on what you are able to do with the property.
- Can paying rent to a landlord be used as proof of being able to afford a mortgage?
The lenders do look at whether rent has been paid on time and whether the money has been there to pay the rent however it won’t make a difference on the affordability (which refers to the amount you can borrow rather than the amount you can pay back each month) as again this will be capped dependant on income.
At KB Mortgage Services, we can help find you the best deal and save you money over the term of your mortgage.
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How KB Mortgage Services can help:
Mortgages for first-time buyers
Mortgage protection insurance
Note: Your home may be repossessed if you do not keep up repayments on your mortgage. You may have to pay an early repayment to your existing lender if you remortgage. Second charge mortgages are arranged by introduction only.
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